KWS Group posts successful annual results

The KWS Group performed successfully in its 2015/2016 fiscal year ending June 30,†2016. The economic environment remained challenging worldwide, in particular as a result of local differences in changes of cultivation area and exchange rate effects. Net sales were up by 5.2% to €1,036.8†(986.0) million and EBIT was €112.8†(113.4)†million. That put the KWS Group’s net sales growth and earnings strength (EBIT margin: 10.9%) within the set target range. The company continued its growth policy and increased expenditure on research & development and on distribution by almost €16 million. KWS expects a slight rise in the EBIT margin despite weaker growth in net sales in the coming fiscal year.

“The whole of KWS achieved impressive results in the past fiscal year – net sales growth in a market that has been declining lately and an almost constant EBIT,” is how Hagen Duenbostel, Chief Executive Officer of KWS, summed up the company’s performance. “We believe the key recipe for that success is our focus as a seed specialist and our independence.” The company’s business expansion was influenced by various factors. For instance, growth regions such as Brazil, Argentina, Russia or Ukraine experienced devaluation in their currency, an effect that sharply reduced net sales, which are consolidated in euros. If exchange rates had remained constant, net sales would have grown by around 8.6%. KWS’ cost of sales rose faster than net sales in the past fiscal year, in particular due to the weather-related increase in the costs of seed multiplication. Research & development expenditure was increased by 4.5% to €182.4 (174.6) million, meaning 17.6% of the company’s revenue went to research & development. Selling expenses rose by 4.1% to €196.8†(189.0)†million, while administrative expenses increased by 2.1% to €76.4†(74.8)†million. EBIT at the end of the fiscal year was €112.8†(113.4)†million.

Segment reports: All product segments grow their net sales

In a tough environment for agriculture, the Corn Segment expanded its operational business and increased its net sales by 5.4% to €795.2†(754.4)†million. KWS improved its competitive situation in particular in South America. In Europe, the reduction in cultivation areas was not able to be offset everywhere by gains in market share and so there were declines in net sales. Expansion of distribution and research & development is the fundamental basis for the segment’s further future growth and was continued in the fiscal year. These expenditures rose by almost €10 million, one of the main reasons for the drop in the segment’s earnings. EBIT fell by a total of 24.5% to €63.6†(84.2)†million, among other things due to higher cost of sales.

Net sales in the Sugarbeet Segment grew in all main regions, rising by 12.5% to €439.5†(390.5)†million. The sales growth achieved by the company was accompanied by higher cultivation areas in Europe and Asia. The segment’s earnings improved, mainly as a result of expanded business and gains in market share. Research & development activities increased in line with medium-term planning, and administrative expenses again remained stable. The segment ultimately posted an increase in EBIT of 27.5% to €118.6†(93.0)†million. As a result, KWS has significantly strengthened its position as the world market leader in sugarbeet seed.

Net sales in the Cereals Segment increased year on year by 6.0% to €118.0 (111.3)†million. This rise is mainly attributable to the fact that revenue from the French subsidiary MOMONT was fully consolidated for the first time. Hybrid rye business, which is important for the Cereals Segment, declined as expected. However, net sales from barley varieties rose, among other things for malting barley. The segment’s income was impacted in particular by the systematic increase in expenditure on research & development and on distribution. The decline in hybrid rye business resulted in higher inventory costs and far lower contributions to earnings overall. The segment’s EBIT fell to €9.0 (12.0)†million.

All cross-segment costs, such as expenditure for all central functions at the KWS Group and long-term research projects, are carried in the Corporate Segment. Its income is therefore always negative. In fiscal 2015/2016, there were positive exchange rate effects and lower costs for a number of central functions, meaning the segment posted EBIT of € –50.1 (–51.2) million.

Reconciliation table

in € millions

†

Segment reports (GAS 20)

Reconciliation

KWS Group
(IFRS 11)1

Net sales

†

1,356.8

–320.0

1,036.8

EBIT

†

141.1

–28.3

112.8

1) Under IFRS 11, the contributions made by the joint ventures are not included in net sales and EBIT.

Growth-oriented capital spending – Focus on hybrid potato breeding

The KWS Group continued its capital spending in the fiscal year, investing €99.6 (132.5) million. The biggest single investments were the acquisition of licenses for corn technology in October 2015 and expansion of production and breeding capacities. In Germany, the company invested in a breeding station and in expanding the greenhouse complex in Einbeck, among other things. In North America, modernization and expansion of sugarbeet seed production was completed.

In addition, KWS decided in the past fiscal year to focus its potato operations fully on hybrid potato breeding. The conventional seed potato business was sold to the Dutch company Stet†Holland†B.V. It was previously run in the Sugarbeet Segment and accounted for net sales of around €28†(26)†million in fiscal 2015/2016.

Proposed dividend of €3.00†a share

For years the Executive Board and the Supervisory Board have pursued a constant earnings-oriented dividend policy under which between 20% and†25% of the KWS Group’s net income for the year is to be paid out to shareholders. This year’s proposal on the appropriation of profits to the Annual Shareholders’ Meeting in December 2016 is geared to that, and a stable dividend of €3.00 a share is envisaged. Subject to the consent of the shareholders, €19.8†million of KWS SAAT SE’s net retained profit will be distributed.

Forecast: Net sales growth below 5% – Slight increase in EBIT margin

The high stocks of agricultural raw materials worldwide suggest that no recovery in the agricultural industry’s economic situation can be expected in the coming fiscal year. Moreover, it looks like there will be a record corn harvest in North America, which will put even more pressure on prices for agricultural raw materials. Consequently, the KWS Group’s net sales are expected to increase below its medium- to long-term growth target. The EBIT return will likely increase. “As far as can be seen at present, the KWS Group’s earnings strength will improve in the coming year,” said Eva Kienle, Chief Financial Officer of KWS†SAAT†SE. “We currently assume that the EBIT margin will be just over 10.9%.” Capital spending on property, plant, and equipment is based on a long-term corporate strategy for expanding the company’s business activity. It is expected to be on a par with the previous year (€99.6†million). The research & development intensity will again be around 17%.

The Annual Report and the Sustainability Report 2015/2016 can be downloaded from the Internet at www.kws.com/ir.